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Assessing Japan’s Carbon Tax

CRISIS - Atmospheric CO2 Levels by Jangira Lewis Asia Feb 24th 20228 mins
Assessing Japan’s Carbon Tax

As the first Asian country to implement a carbon tax, Japan and its policymakers are, in some ways, ahead of the game when it comes to addressing climate change. Yet opinions on Japan’s status as a climate change leader are somewhat conflicted. Some claim they already have a strong presence on the global stage as an energy-efficient, low-carbon economy, whereas others argue against this notion, arguing that their carbon emissions have not significantly reduced since the 1990s. So just how effective is the carbon tax in Japan? Can any reform be made for climate change policies in the future?

For centuries, Japan has long held its presence as a regional power in the world, with only the US and China bearing larger economies than it does today.

In 1997, Japan hosted the third formal meeting of the United Nations Framework Convention on Climate Change (UNFCCC) in Kyoto and helped broker the adoption of the Kyoto Protocol – a treaty aimed to manage and reduce carbon dioxide emissions and other greenhouse gases that have consistently been referred to in climate change conferences. 

In his first policy address to parliament since taking office, the (now former) Japanese Prime Minister Yoshihide Suga pledged to cut carbon greenhouse gas emissions to net zero by 2050. 

Therefore, it’s unsurprising that this developed country is expected to take the lead on tackling climate change. 

Japan’s geographical position in the Pacific makes them especially susceptible to the consequences of climate change. The threat of rising sea levels, intense typhoons, coastal erosion, and summer droughts pose a daunting threat on this East Asia superpower. 

Ecological changes are taking place on a daily basis. In 2015, Japan’s Central Environment Council released a report on the assessment of the impacts of climate change. They found a variety of detrimental impacts occurring, such as the decline in the quality of rice, and severe rainfall creating an environment for disastrous flooding. 

There has even been evidence of delays in the first springtime appearance of insects, and proof of the early blooming of cherry blossoms, Japan’s prominent cultural flowers. The Japan Meteorological Agency believes these changes have been influenced by long-term temperature rises. 

The Japanese government claims that carbon emissions in Japan fell between 2019 and 2022, for the seventh consecutive year. They believe their emissions to be lower than emissions of the period 1990 – 1991. Yet, Japan remains to be the world’s third largest climate change emitter of greenhouse gases (GHG) and they have been criticised for only demonstrating a slight decrease in emissions, with some asserting that the figures fell an alarmingly small amount between 2014 – 2015. It’s been proposed that further cuts are needed if they are to be in line with their fair share in their pledge with the Paris Agreement – to cap global temperatures increase to 1.5-2 degree Celsius above industrial levels. 

It would, however, be completely unfair to uphold Japan to this small decrease as following the Fukushima disaster where Japan turned off all their nuclear power plants and moved towards fossil fuels. Thereby unsurprisingly, emissions rose between 2009 – 2013. 

Does Japan Have a Carbon Tax?

Japan was the first Asian country to implement a carbon tax. Science Direct recently published a study assessing their carbon tax, defining its limitation, and offered policy reform suggestions. 

Their carbon tax was introduced in October 2012, as part of overall tax reform policies. The aim from this tax was to reduce 80% of Japan’s GHG emissions by 2050. The carbon tax is revenue neutral. Revenue generated is directed to supplement renewable energy projects and to enhance energy-saving measures.  Japan has made steady progress in reducing their carbon emissions, and has other policies and measures in place to address carbon emissions. They have their emissions trading system (ETS), and subsidiary programmes; these are known as the Joint Crediting Mechanism (JCM), J-Credit, non-fossil fuel energy certificates. and voluntary credits. 

Set up in 2013, the JCM is a system that quantifies participant’s efforts and cooperates with developing countries to reduce greenhouse gas emissions. This joint mechanism has 17 countries participating. 

J-Credit was also implemented in 2013, and is a market participant trading system. The J-Credit Scheme is designed to certify the amount of greenhouse gas emissions reduced and removed by sinks within Japan.

They also had an auction system set up in 2018, where you can sell non-fossil fuel energy certificates that the government verifies as generating renewable resources. 

You might also like: What Countries Have A Carbon Tax?

japan carbon tax

Image: Wikimedia Commons.

Is the Japan Carbon Tax Adequate? 

There have been limitations identified in Japan’s climate policies. They have not addressed the urgent climate crisis and made any substantial changes to domestic carbon reductions. 

The carbon tax itself has been criticised as being too low, citing ineffective carbon rates in industrial and electrical sectors. Japan has one of the lowest carbon tax rates amongst OECD and G20 countries. There were supposed to be annual increases in the tax rate, however these increases have stalled since 2016. 

The UNFCCC believes that Japan needs to make a 76% reduction in carbon emissions, whereas Japan has only pledged to reduce 26% by 2030. Their pledge does not fall within the calculated reductions scientists believe Japan needs to adopt. 

The tax applies to the fossil fuels sectors, such as petroleum, oil products, natural gas, and coal. However, the Japanese government also extends several exemptions and refund measures on carbon tax rates for fossil fuels products used in particular energy-intensive industries. 

Exemptions and refund measures are extended to fossil fuels for rates added by the carbon tax. A lot of support measures are given to energy-intensive industries, with even additional relaxing of tax obligations for some firms. 

The Liberal Democratic Party – Komeito Coalition government has expressed that their carbon policies need reform, with discussions currently in the process

The Impact of the Fukushima Disaster

It would be unfair not to acknowledge the hit taken by Japan following the Fukushima nuclear disaster, the most severe nuclear accident since Chernobyl in 1986. In 2011 when the disaster occurred, Japan made the decision to transition away from nuclear power. By 2013, Japan had shuttered all its nuclear plants and they moved towards a large expansion of gas and oil. 

Gas-based electricity became the largest contributor to fill the energy gap that was created when power plants were closed. 

Since Fukushima, coal power has risen, and accounted for 34% of Japan’s electricity production in 2017, a huge increase from their 27% in 2010. 

Japan is gradually opening nuclear power back up, however this topic remains contested amongst the Japanese populus. 

They need to phase out coal plants by 2030, if they are to align with their shared Paris agreement goals. 

Advancements in Renewable Energy

Being among the most technically-advanced and innovative countries in the world, Japan has vast potential for renewable energy adoption.

Japan has been expanding renewable power in recent years. By 2030, Japan expects to meet targets for 22%-24% share of renewable energy use by claiming they intend to bring in more electricity from solar, hydro, biomass, and wind. These predictions would be a significant increase from their 18% in 2017. 

Despite these predictions, a paradox still exists within their ability to advance in renewable energy. 

Although Japanese investors, (such as the Japan International Cooperation Agency, Japan Bank for International Cooperation, and Sumitomo Mitsui Banking Corporation of Japan) support renewable energy projects overseas, investments in the country’s green energy projects are stagnating.

Policy Reform Recommendation

There have been talks of the setting up of a carbon credit market, with a demonstration set to launch in 2022-2023. Their intention is to combine the market with already existing carbon trade systems. 

Japan needs to be more proactive, particularly when countries such as Germany and the US have implemented carbon policy reform. 

This is significant, as Japan, Germany, and the US have similar economies. Therefore, it may be helpful to explore whether the changes made in Germany and the US can be applied to Japan. 

German and US markets are important export destinations for Japanese exports. EU and US laws have influence in the Japanese legal system, and all three of their economies have similar characteristics. 

Japan’s and Germany’s economies are rather similar in that they have the same Gross Domestic Product (GDP) performance, similar-sized territories, limited resources, and rely heavily on energy exports. 

Japan and the US also have strong bilateral economic ties, as well as close partnership in areas of science and technology. They work closely together in international climate change efforts, and they were both signatories to the Paris Agreement and Kyoto protocol. Both countries have even faced strong domestic political resistance to improvements in climate pricing and climate policies. 

Analysing and studying both Germany and the US’ recently adopted carbon reforms can provide predictions and insights into potential policy measures that could be compatible with Japan’s economic system. 

By taking into consideration the reforms made in both Western countries, the following seven points could be explored in discussions on reforming carbon tax policy:

1. Focus on revenue generation opportunities

These revenue reforms could be considered in conjunction with discussions on subsidy support reform and carbon tax revenue treatment. 

2. Increase the carbon tax price 

The current tax has often been criticised as being too low. Therefore a steady increase should be introduced in order to ensure firms can adjust their business strategies to a future low-carbon economy. 

3. Revisit current exemptions in carbon intensive sectors 

Reducing fossil fuel subsidy support every year with an increase in subsidy support for green energy industries could be a good way to encourage the transition to cleaner energy. 

Consider expanding the scope of carbon tax or existing regional emissions trading systems to ensure that carbon intensive sectors are not exempted. 

4. Provide compensation to low-income households 

Easing the financial burden on low-income households would be a great way to generate public support for carbon tax increases. Providing compensation in the form of lump sum transfers, tax rebates, tax deductions, and even further financial support for families who live in colder regions. 

5. Revise the possibility of Border Adjustment Taxes

Both Germany and the US have made reforms addressing the implementation of Carbon Adjustment Border Taxes to address concerns of international competitiveness and carbon leakage. 

6. Keep a global presence in international carbon pricing committees

Keeping up-to-date in international carbon pricing discussions and policies could harmonise domestic and international pricing standards, carbon content calculations and carbon treatment in international trade. 

7. Further research in science and technology 

Further research can be invested in science and technology. More renewable energy uses and resources need to be discovered if we are to transition to a zero-coal-dependency future. 

Additionally, research areas of technology that can monitor and prevent data falsifications for carbon tax pricing calculations will be useful also.

Featured image by: Photoeverywhere/Free Images Live

You might also like: How India’s Carbon Tax Implementation Could Set a Precedent for G20 Countries

Tagged: carbon tax Japan

About the Author

Jangira Lewis

Jangira Lewis currently works as a Secondary School English Teacher in Hong Kong. Born and raised in Luton, she graduated with a Masters degree in International Journalism from the University of Leeds. Her interests lie in geo-politics, health and nutrition, humanitarian issues, and animal welfare.

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